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The World Bank and its ‘new’ Poverty Approach

‘We should strive to eradicate absolute poverty by the end of this century’ said World Bank President Robert McNamara in 1973 at the annual meeting of the Bretton Woods Institutions. As we know, at the end of the century, the World Bank and the IMF introduced their ‘Poverty Reduction Strategy Papers’ and at the UN General Assembly it was decided to halve extreme poverty by 2015, compared to 1990. To-day, World Bank President Jim Yong Kim proposes to ‘end extreme poverty by 2030’.i

A new goal, a new hope ?

Millennium Development Goal number 1 was met in 2010, five years before the end date. Extreme poverty declined from 41,7 % in 1990 to 22 % in 2008. However, this is mainly thanks to China and India. In numbers of persons, extreme poverty in Subsaharan Africa almost doubled. In Latin America, it declined from 10,7 % to 6,5 %. According to World Bank statistics, there are still 1,2 billion extremely poor people in the developing world, mainly in South Asia and Subsaharan Africa [1].

What the World Bank President now proposes, corresponds to what Martin Ravallion, one of the main poverty researchers at the World Bank, examined a couple of months ago. [2] According to his study, two benchmark trajectories can be looked at. The first one implies that the fast rate of poverty reduction since 1990 will not be maintained. China may stay on track, but if growth slows down, it will take another 50 years to lift 1 billion people out of extreme poverty. The second and more optimistic path implies that GDP in developing countries will continue to grow at 6 % in the coming years, or 4,9 % per capita. In that case, one billion extremely poor people will get above the 1,25 $ a day line by 2027. Theoretically, this linear progress is possible, according to Ravallion, but if inequality continues to rise, higher growth rates will be necessary to reach the target.

This last point explains why Jim Yong Kim has added a second goal in his speech. ‘We must collectively work to help all vulnerable people everywhere lift themselves well above the poverty line’. In order for poor people to join the middle class, a focus on equity is needed.
However sceptical we may be, new promises do indeed mean new hope, and it is interesting to look at how the World Bank will try to make this happen. Is the strategy different from the former one ?

Growth, not social policies

A first comment concerns the return of ‘poverty’ in the World Bank discourse. After the very intensive poverty focus in the 1990s, poverty had almost disappeared from the last World Development Reports. [3] In its last 2013 Report on ‘Jobs’, ‘poverty’ is only mentioned to recommend research on the relationship between jobs and poverty, and a brief reference is made to the ‘working poor’. [4] More and more a shift to ‘equity’ was taking place, though in very careful terms, avoiding the concept of ‘inequality’. To-day, inequality is mentioned and its reduction is linked to reaching the poverty goal. ‘Promoting shared prosperity is a path towards a world free of poverty’. [5] Moreover, the agenda is also conditioned by ‘environmental, social and fiscal sustainability. [6] This is clearly a very important point of progress in the World Bank’s discourse.

Nevertheless, other points in the documents do raise concerns.

A first point is that just like 20 and even 40 years ago, the strategy is mainly focused on growth. Surely, the World Bank stresses that ‘the poor should not only enjoy the benefits of growth, but be an integral part of creating prosperity’, and that the income growth of the bottom 40 % should therefore be higher than the average income growth. This is a very ambitious target and, as the Development Committee reacted, the translation of growth into poverty reduction must happen ‘to an extent not seen before in many low income countries’. [7]
More importantly, social policies are once again discarded. As Martin Ravallion already said in his working paper, perfectly targeted transfers should make it possible to bring everyone to the 1,25 $ a day line, but ‘such perfect targeting cannot happen’. Poverty reduction is mainly the consequence of more and better jobs, thanks to a strong contribution of the private sector, adds the World Bank. ‘Only to a lesser extent did direct income transfers to the poor, remittances or changes in demographic patterns contribute to poverty reduction.’ [8] If resources have to be found in a better functioning tax system, this is not for transferring income, but for investing in opportunities that will create growth. [9]

This reasoning ignores two important findings from recent research.

First of all, the conditional cash transfers, as initiated by Lula in Brazil, have proven to be a direct help for extremely poor people to go and look for jobs or to develop self-employment, to improve health and to reduce child labour. It is the main argument for developing these systems, and the World Bank itself endorsed these findings. [10]

Secondly, because of the failure of poverty reduction policies in the past twenty years – linked to structural adjustment – more and more international organisations are now focusing on social protection. However limited the current proposals are [11], they do have a potential of going beyond poverty reduction, to reduce inequality and to offer people a comprehensive package of social assistance and services. Even the World Bank seemed to agree on this new path, as it published in 2000 already a ‘strategic framework’ for social protectionxiii and completed it in 2012 with a document on a Social Protection and Labour Strategy [12]. In this document we read that ‘social protection … is central to growth-promoting reforms’. [13]Its definition of social protection is very modest, though here the World Bank recognizes that remittances promote equity and that core labour standards, as adopted by the ILO [14], ‘are central to protecting workers and improving their productivity’. [15]

A third point is that once again, the neoliberal dogma of government regulation and private sector’s central role is repeated. Governments have to create the investment-friendly environment and improve competitiveness, enabling the private sector to work and create jobs. Governments are not supposed to intervene directly to promote growth and employment. ‘A key element of our work is to promote the private sector as a critical driver of jobs, goods and services’. [16]
Finally, the World Bank refers to its report on ‘Green Growth’ [17], a strategy that has largely been criticized for confirming the current neoliberal policies, instead of promoting the system change that environmental problems require. [18]

Ambiguity

The new goal of eradicating extreme poverty and sharing prosperity certainly has to be welcomed. But serious concerns can be raised about its feasibility. Not only is the necessary growth extremely high while inequality is indeed rising, moreover it has to be questioned whether the exclusion of social protection in general and social policies in particular can help to reduce poverty. Domestic and international redistribution of incomes is not mentioned. The World Bank does speak about a ‘social contract’ every country needs [19], but one cannot avoid to wonder if poor people will be happy with the little that is on offer.

The concrete strategy for this new goal of the World Bank Group will have to be defined at the annual meeting in autumn. One can only hope that, for once, knowing the crisis and its serious social consequences it has on people all over the world, knowing also the different economic errors the IMF has made in promoting neoliberal policies, the Member States will carefully reflect on what precisely they want. A politically unstable world of rich and poor, with hardly any solidarity between them, or a common world of people caring to protect the planet, societies and individuals.

Doubts are justified. Reading the 1973 speech of McNamara, one cannot but see the similarities in the reasoning : the exclusive focus on growth, the moral case for poverty reduction, words on a more equitable distribution of the benefits of economic growth, and finally the moral call to governments. ‘I cannot believe that in the face of all this the people and governments of the rich nations will turn away in cynicism and indifference’, McNamara said. ‘Is there anyone here today who would not want to erase this stain from our collective conscience ?’ echoes Jim Yong Kim 40 years later.

We have to wonder, then, why exactly poverty is now back on the agenda, linked to inequality, but ignoring social protection. In fact, it looks as if poverty, once again, is used as a strategic tool in the World Bank’s endeavour to change itself. It is its ‘modernization agenda’ [20], because it is ‘overstretched with multiple strategies and goals’ [21] In 1991, when it introduced the poverty agenda, it was said to be ‘an integrating theme for a country’s development strategy, policies and expenditure program’. [22]

If this is the explanation for focusing once again on poverty, we have new evidence on how poverty is never put on the agenda with poor people as its priority. [23] As the father of poverty sociology explained a century ago, anti-poverty policies are meant to maintain a social status quo. [24]Other researchers have added that poverty reduction programmes often serve first and foremost the legitimacy of those who are in power. [25]And finally, let us not forget that poverty is a consensus topic, a ‘moral obligation’ able to give hope to the poor and a good conscience to all others.